The Supreme Court on Thursday upheld the constitutional validity of entertainment tax imposed by state governments on cable and Direct-to-Home (DTH) television services.
A Bench comprising Justices BV Nagarathna and N Kotiswar Singh ruled that states have the legislative authority to tax the entertainment component of such services, even if the broadcasting function is already subject to service tax by the Union government, Bar and Bench reported.
DTH operators’ appeals dismissed
The top court dismissed appeals filed by major DTH providers, including Tata Sky (now Tata Play), Dish TV, and Sun Direct. These companies had challenged various state entertainment tax laws, arguing that the tax was unconstitutional since the Centre already levied a service tax on broadcasting.
“The state legislatures as well as the Parliament, both have the legislative competence to levy entertainment tax as well as service tax respectively on the activity carried out by the assessees herein,” the court stated in its 321-page judgment.
The appeals arose from decisions of several high courts that had upheld the validity of state entertainment tax laws enacted under Entry 62 of the State List in the Seventh Schedule of the Constitution. The states involved included Kerala, Uttar Pradesh, Gujarat, Delhi, Tamil Nadu, Punjab, Assam, Jharkhand, Rajasthan, Odisha, and Uttarakhand.
Broadcasting taxed on dual aspects
Central to the Court’s decision was the “aspect theory”, which permits different levels of government to tax separate components of the same transaction.
“The activity of broadcasting is for the purpose of entertainment of the subscriber… There are two aspects in this activity; the first is the act of transmission of signals… The second aspect concerns… the decryption of the signals by the set-top boxes,” the judgment noted.
While the Centre can tax the service of broadcasting under Entry 97 of List I, the states are constitutionally permitted to tax the entertainment aspect under Entry 62 of List II. This distinction allows both forms of taxation to co-exist without conflict, the news report said.
Court rejects industry argument
DTH operators contended they were merely intermediaries in the broadcasting chain and that only service tax should apply. They argued that no separate “entertainment” aspect existed in their services.
The court, however, disagreed. “No entertainment can be presented to the viewers unless the broadcaster transmits the signals for instantaneous presentation of any performance, film or any programme on their television,” it said.
The SC Bench concluded that DTH service providers play a direct and essential role in delivering entertainment by providing set-top boxes and viewing cards that decrypt signals, the news report said.
Kerala’s appeal allowed; HC ruling overturned
The judgment also reversed a 2012 Kerala High Court ruling that struck down a provision of the Kerala Tax on Luxuries Act, 1976. That provision had imposed a luxury tax on cable operators with more than 7,500 connections, while exempting smaller operators. The high court had held this classification violated Article 14 of the Constitution.
“The High Court erred in holding that the classification was unreasonable and lacked any rational nexus with the objects of the Kerala Act of 1976,” the Supreme Court ruled, allowing Kerala’s appeal.
Retrospective taxation addressed
The apex court partially allowed appeals concerning retrospective taxation in Uttar Pradesh. It ruled that states cannot impose entertainment tax on DTH services for periods before legislative amendments specifically included such services.
“There needs to be a specific inclusion of DTH services within the ambit of entertainment in the charging provision… In the absence of specificity, the lacuna of a missing taxable event persists,” the court said.
Clarification on taxing powers
The judgment offered significant insights into constitutional interpretation, highlighting that taxation powers are distinct and cannot be implied under regulatory entries, the news report stated.
“Under the Constitution of India, the power to tax is not an incidental or ancillary power,” the court said, emphasising that Entry 31 of List I (covering broadcasting) does not empower taxation, whereas Entry 62 of List II specifically does.
The top court reaffirmed that valid tax legislation must identify the taxable event, the measure and rate of tax, and who bears the incidence. It concluded that most state laws imposing entertainment tax on DTH services meet these constitutional criteria.
